Tuesday, March 24, 2015

Artnet's Rozalia Jovanovic reports on a lawsuit by the estate of legendary collector Robert Ellsworth, “against attorney George L. Bischof and his firm for negligence in creating a charitable trust in Ellsworth's will that has resulted in $25 million in taxes for Ellsworth's estate.”

It’s a little hard to tell from the report what exactly happened, but it seems like the trust was not a so-called “qualified charitable remainder trust” -- meaning the non-charitable interest (the part that went to Hashiguchi) was neither an annuity nor a unitrust interest. Instead, it was cast as a discretionary trust, for which no charitable deduction is allowed.

On the other hand … it’s possible that there was no error here. The taxes on the 2010 will, where everything passed to Hashiguchi, and the 2013 will, where the assets pass to the non-qualified charitable remainder trust, would be the same. Perhaps Ellsworth still wanted the entire corpus to be available to Hashiguchi during Hashiguchi’s lifetime, which would not be the case with a charitable remainder trust, and simply wanted to designate the charities which would receive any corpus not consumed by Hashiguchi during his lifetime. It’s true that $25 million is a stiff price to pay to ensure that the entire trust corpus could be made available to Hashiguchi should he need it, but the result is no different than under the 2010 will, where Hashiguchi gets everything outright in the first instance.

Thursday, March 19, 2015

... let me also direct your attention to the third volume in the Handbook for Academic Museums series, which includes a phenomenal essay by Peter Dean and Bradley Bateman on the Randolph College deaccessioning controversy. I hope to say more about the essay at some point, but for now, this will give you the flavor:

"Sometimes the AAMD has justified its 'ethical' stance
against the use of sale proceeds for purposes other than acquiring new items by
claiming that such use of proceeds might make donors less willing to donate a
work of art, or contribute toward the purchase of a specific work of art, on
the grounds that such use would devalue their original philanthropy. This is
also an inconsistent argument. The AAMD evidently has no problem with the sale
of a work of art, whether donated or purchased with a donor’s funds (unless the
work was accepted subject to an express condition prohibiting sale). It has no
edict against the sale of any individual piece of art; its rules are restricted
to the use of proceeds .... If
a donor bequeaths a Picasso to a museum which later sells the painting in order
to purchase a Damien Hirst sculpture, the AAMD assumes that the donor (or other
future donors) will not be upset and that this will have no effect on future
philanthropy. But if the museum sells the Picasso to help build a new wing to
house a collection of contemporary art, then the AAMD believes that this
creates a risk that the donor (or other future donors) will abandon their
philanthropy to art museums. Where is the evidence for this distinction?"

I highly recommend this piece, by UC Berkeley's Michael O'Hare, in the new issue of the policy journal Democracy.

The thesis:

"Think about a world in which our great paintings and sculpture are mostly on view instead of where they actually are, which is mostly locked up in the basements and warehouses of a handful of our largest museums. In which you didn’t have to go to one of a half-dozen big cities to see them, and didn’t rush through an enormous museum for a whole day because you paid so much to get in. ... That world is actually within reach, and the main reason we don’t have it is that the people to whom we have entrusted our visual arts patrimony have nailed each other’s feet to the floor so they can’t move toward it, and done so with the tacit approval and even collaboration of government. Big museums have long refused to recognize their unexhibited collections of duplicates and minor works as a financial resource. As a consequence, they are wasting value by keeping these works hidden. If they were redistributed to smaller institutions, and even to private collectors and businesses, they would fund an explosion of the value for which we have museums in the first place: people looking at art and getting more out of it when they do."

But wouldn't that be a violation of the museum directors' code of ethics? Sure, but:

"this code was not brought down a mountain by Moses; the directors themselves made it up. A code of ethics is a good thing, but it isn’t a law of God or nature. Once upon a time, the lawyers’ code of ethics forbade them to advertise. Now it doesn’t; the republic and the bar endure."

Read the whole, excellent thing. And for more from O'Hare, see here, here, and here.

UPDATE: UCLA's Mark Kleiman tweets: "Curators and art critics have convinced the world that 'deaccessioning' is scandalous.
That is the real scandal."

Wednesday, March 18, 2015

I finally had a chance to read the decision I mentioned last week that dismissed authentication-related claims against the Haring Foundation. You can read it here. If you don't have time to wade through the whole thing, Rebecca Tushnet has a good summary here. Nicholas O'Donnell has his usual valuable commentary here. It's in some ways an odd decision, which I'll explain further below. But the important point, I think, is that if you're an artist foundation looking for a signal that it's safe to get back into the authentication business, this case isn't it. If anything, as O'Donnell points out at the end of his post, it might have the opposite effect. Here's why that might be the case:

1. First off, this was the third motion to dismiss the case. The plaintiffs were allowed to amend their complaint in response to the first two. So even here, where the outcome was as favorable to the foundation as can be imagined, it didn't come cheap.

2. In dismissing the antitrust conspiracy claim, the court distinguishes Warhol/Simon-Whelan (where a similar claim survived a motion to dismiss) in part on the grounds that "the defendants here ceased their authentication activities in 2012 and [therefore] could not be plausibly alleged to control authentication of Haring's work." That's obviously an argument for foundations not getting into the authentication business (or getting out of it if they're currently in it).

3. Similarly, in dismissing the antitrust monopolization claim, the court emphasizes that the authentication committee "was dissolved in 2012 and no longer offers authentication services."

4. The state law defamation claim was dismissed based on the quirky facts of this case, which were that the foundation directed its statements towards an exhibition which included the plaintiffs' works (rather than at the plaintiffs directly): "the plaintiffs have failed to allege sufficient facts that would allow a reasonable jury to conclude that the [foundation-issued] Press Release concerns them." That's not going to be the typical situation in which these cases arise.

5. On the other hand, the court does say that the defamation claim would have failed anyway because you can't base a defamation claim on a statement that "only relates to [the plaintiff's] property," which -- if true -- would be a help to potential defendants in these cases.

6. Another holding that, if it were right, would also be extremely helpful to authentication-minded foundations (and others) had to do with the trade libel (or "product disparagement") claim, which is really the heart of any authentication-related dispute. The court says that, to prevail on such claim, you have to show "special damages" -- i.e., specific, named purchasers that you lost as a result of the defendant's statements. One of the plaintiffs alleged that he lost a sale to a London museum -- but even that wasn't enough because he didn't "name the museum or the sale price." That would, as I say, be a difference-maker ... but is it right? I am minding my own business with what I think is a $50 million painting by Artist X hanging on my wall. Out of nowhere, the Artist X Foundation (or some other well-respected authority on Artist X's work) announces to the world that my painting is not an authentic work by Artist X (and is therefore now worthless) ... and there's nothing I can do about it because I can't point to a specific sale that I lost? I'm curious to see whether other courts will line up behind that reasoning.